Coworking, Flexible Work Spaces are Latest Trends in Evolving Office Needs of Modern Workforce
The beauty of creative office is in the eye of the leaseholder. In today’s world, phrases like “coworking” and “flexible workspace” often arise in conversation, but what do these terms really mean? The definition varies depending on who you ask, where they are and what they do for a living.
As these factors are often in flux, so is the meaning of creative office. However, there are four core elements that comprise the essence of creative office regardless of market or mindset: collaboration, engagement, technology and flexibility. These four tenets ultimately comprise a framework that drives profitability and increases employee engagement in an increasingly competitive environment.
At the end of the day, these environments must not only enhance business goals, but also be specifically tailored to the culture and needs of the organizations they serve.
From a city’s urban core to prime business centers in the suburbs, the trends emerging in modern office spaces are in response to the rapidly changing needs of today’s workforce. Though it comes with an extra premium on rent, many startups and new employers are choosing to save capital on the front-end by moving into tech-equipped spec suites that enable them to hit the ground running.
Many of these tenants need something yesterday, and the wide array of open floorplans that include collaborative areas, loft-style ceilings, lounge space, interior glass walls, industrial-style light fixtures, wireless connectivity and a bevy of amenities create a culture where employees thrive. Leading the charge are superstar coworking brands like WeWork and Industrious, which continue to accelerate expansions in Atlanta and across the Southeast.
There is also a rapid growth of enterprise among office owners to bring these creative elements in-house, such as the “town hall” concept developed at Bridge Commercial Real Estate. The town hall model offers a hybrid approach of both creative and traditional office space, including a common amenity area, more privacy, secured server and the ability to promote a company’s unique culture.
In reality, you may not want to be talking trade secrets at a table with strangers, while the ubiquitous beer tap doesn’t match your company’s vision. By building upon established concepts of community building and activation from coworking firms through a more customized approach, companies are finding ways to impact a whole building in ways WeWork or Industrious does on an individual floor.
While the bulk of creative office has historically been concentrated in urban gateway cities such as New York, Seattle and San Francisco, there is significant growth in secondary markets, specifically value-add assets in high-growth urban/suburban submarkets. These prime business centers typically see an influx of mixed-use developments, increased density and high accessibility, making the area feel more like an urban node that delivers suburban convenience.
In Atlanta, we’re certainly seeing an increased desire for creative office in the urban core, but also in retail-heavy areas with plenty of parking across the north metro area, including Buckhead, Central Perimeter, Alpharetta and Cumberland. Bridge’s recent acquisition of Lenox Park offers an opportunity to carve out a new creative office environment within a campus that also houses long-time single corporate tenant. And in metro Washington, D.C., Bridge is rolling out a town hall concept as part of the repositioning of Station Square, a 510,200-square-foot, Class A office complex directly adjacent to the Silver Spring Metro Station in downtown Silver Spring, Maryland.
In order to keep growing, coworking companies need to take on less risk. This is leading to a transition happening in real time within the office industry. The risks and rewards differ depending if a landlord is leasing space to a coworking company with traditional market rates and large tenant improvement packages (a similar approach to signing a lease to any other company), or if a landlord and coworking company form a partnership much like a retail model, in which the landlord receives a percentage of the profits over a specific breakpoint.
In the latter route, the landlord may pay a large portion of the upfront cost while a coworking tenant comes in and manages it as a business, leading to revenue gain for the landlord reaching a 10 to 20 percent premium on the value of a traditional lease.
As the market continues to rise, the ratio of creative office to traditional is anticipated to follow suit. JLL forecasts flexible office may grow to as much as 30 percent of the market share by year 2030 — a 25 percent increase from its current share.
However, in 2019, landlords are also keeping one eye on the economic cycle with the expectation that another recession isn’t a matter of if, but a matter of when — and how severe. In recent times, the major players in executive suites grew significantly during the expansion, then went bankrupt in the downturn.
The intense growth of coworking in recent years begs the question: Will creative office face a similar fate? Again, the answer depends on who you ask. If there is a major disruption in the market, and a large portion of the coworking companies go away, creative office doesn’t necessarily disappear.
However, a lot of empty space with unconventional buildouts could flood the market. One possible solution is that more coworking companies ultimately move to a third-party management model and partner with larger brokerage firms to help fill their vacant spaces.
In other words, creative office visionaries will continue to think and build outside the box to offer new growth opportunities in the years ahead.
By Jeff Shaw, CEO of Bridge Commercial Real Estate. This article originally appeared in the March edition of Southeast Real Estate Business.